Cost not the driver of outsource rise

Most Australian companies don’t want to send business functions offshore, but many intend to outsource a lot more roles in the next two years and the primary aim isn’t to reduce costs, according to a recent survey.

The survey commissioned by the Australian Business Process Outsourcing Association and two large outsource providers, IBM and Fuji-Xerox, found 83 per cent of companies didn’t intend to send work offshore.

However, increases in outsourcing were expected across a range of areas including finance and accounting, HR, marketing, reporting and analytics and print and document management.

The smallest growth was in finance and accounting, with 13 per cent of organisations outsourcing now compared with 17 per cent within one to two years.

The biggest growth was in marketing, jumping to 24 per cent from 9 per cent, supply chain management going to 16 per cent from 6 per cent and reporting and analytics rising to 18 per cent from 6 per cent.

Seventy-one per cent said the main reason for outsourcing was global expansion, followed by “scalability” and “going green”, with 83 per cent of companies in manufacturing seeing it as a way to reduce their environmental impact. Reducing cost was one of the least cited to outsource at 21 per cent.

At a forum in Sydney on Wednesday, participants from the ABPOA, KPMG, IBM and Fuji-Xerox said the increases were off a low base, turning around a slow uptake of outsourcing in Australia.

“One of the reasons Australia has been fairly slow moving is that most Australian companies sit in he middle of the bell curve, they are fairly comfortable,” said Peter Monk, the director of global process services at IBM Australia & NZ.

“I think we have seen a few companies who are laggards who have been forced to do something because business as usual won’t work.”

KPMG’s head of shared services and outsourcing, Michael Smart, said Australia was a long way behind the rest of the world in its uptake of BPO.

Part of the reason is that it is “inherently more difficult than IT because a business process has a lot more tentacles in an organisation – even finance and accounting, even though there are many providers that can deliver that more effectively and cheaply through global delivery models”.

Martin Conboy, president of the ABPOA, said there were four stages of outsourcing: 1.0, 2.0, 3.0 and 4.0. The first stage is “lift and shift” of transactional functions which has been done over the past decade.

The next stage is “process re-engineering”, 3.0 is moving expenses from a capital expenditure model to an operational expenditure model, and cloud computing is part of that shift. 4.0 involves the outsourcing of data and analysis.

“From this research we have found [Australia] has just slightly passed BPO 2.0, we are not quite at BPO 3.0,” he said.